9/21/2009 @ 12:00AM

A Lawyer Who Tries to Block Settlements

Grand Theft Auto: San Andreas, released in 2004, features a smorgasbord of titillating scenes including graphic sexual bondage, flagellation and a Christian preacher complaining about a prostitute’s ineptitude at performing a certain sexual act. All this was in the authorized version. Customers who were computer-savvy and persistent enough could unlock special scenes that showed, well, more sex.

That was enough for the class action lawyers to swing into action, suing on behalf of consumers who like a lot of sex in their games but not too much. In the inevitable settlement,
Take-Two Interactive Software
drew only $27,000 in claims from aggrieved consumers but agreed to pay $1 million in cash to the lawyers, plus $24,500 to the original plaintiffs in the case.

At this point Washington, D.C. attorney Theodore H. Frank stepped in. He traveled to New York at his own expense, filed an objection and convinced the judge to hand down a ruling, now under appeal from the plaintiff lawyers, kiboshing the settlement.

A University of Chicago Law School graduate and former scholar at the conservative American Enterprise Institute, Frank, 40, is on a crusade to bust up dubious settlements. These he defines as agreements–between lawyers who are eager for a fee and companies that want to put a nuisance suit behind them–that deliver little if anything to consumers.

“If you have a legitimate case, you’re not going to settle it for nothing,” Frank says. “I shouldn’t have to come in there and say, ‘Hey, there’s a problem.’ The judges should see it.”

There are risks associated with this sort of behavior. Plaintiff attorneys tend to view lawyers who object to their settlements as traitors, and in at least one case filed a racketeering suit against them.

Frank is “a professional objector,” fumes Stephen Garcia, lead attorney on a suit against
Motorola
and other makers of Bluetooth headsets who claims credit for a strengthened label warning consumers about hearing loss by playing the devices too loud. When pushed, Garcia can’t name a case where Frank earned a fee; Frank says all of his objections so far have cost him money. Garcia is seeking $850,000 for his work.

“What I have seen is the profit-seeker who adds no value to the class, who only complicates the process and extracts benefit for himself,” adds James Holmes, a Henderson, Tex. plaintiff attorney who sought sanctions in 2007 against lawyers who held up a settlement against
Honda
America. In that case, lawyers accused Honda of selling cars with odometers that racked up miles too fast, foreshortening warranties and leases. Honda agreed to lengthen the warranties–an agreement that lost value with every month the case dragged on–but several attorneys filed objections anyway.

Frank says he has obtained initial funding for his Center for Class Action Fairness from the Searle Freedom Trust, founded by the family behind the drugmaker, and won’t angle for a fee unless his work delivers real benefits for consumers.

Plaintiff lawyers argue they are entitled to fees even when they don’t win anything of value for consumers. But Frank says manufacturers just pass the cost of those fees on to consumers, leaving them worse off than if the suit had never been filed. In the Bluetooth case the lawyers have also proposed steering $100,000 to hearing-related charities. Such payoffs have become controversial, as the money sometimes goes to charities with ties to plaintiff lawyers or even presiding judges.

After few consumers availed themselves of a $2 billion settlement over supposedly defective laptop computers in 2000, for example,
Toshiba
America handed $353 million to a Beaumont charity whose chairman was plaintiff attorney Wayne Reaud, the lawyer on the case. Six years later the charity was still sitting on $250 million and the Texas attorney general sued for breach of fiduciary duty, including paying its president, W. Frank Newton, $560,000 in 2004. Newton is the former president of the State Bar of Texas. “If you think class actions are supposed to benefit the class, these charitable donations have nothing to do with that,” Frank says.

Frank faces wily opponents. Plaintiff lawyers have already come up with one tactic to neutralize objectors: “quick pay” clauses whereby they get paid immediately, even if consumers must wait until all appeals are exhausted to get whatever has been negotiated for them. “The class action lawyers are very clever,” says Brian Fitzpatrick, an assistant professor at Vanderbilt University Law School and author of a forthcoming paper on class action objectors.